It’s the first week of the New Year and I’m in the process of reviewing which UK stocks did well in 2020. Argo Blockchain (LSE: ARB) shares have recently been in my sights after a stellar rise of 580% since the beginning of December.
The stock has had a phenomenal run but should I buy now? Let’s consider the investment case in detail.
What is Argo Blockchain?
Argo Blockchain is one of the first cryptocurrency mining service providers to list on the main market of the London Stock Exchange.
The company is a global data centre business that provides a powerful and efficient platform for the mining of leading cryptocurrencies, including Bitcoin. It also offers enterprise-scale mining-as-a-service to institutional investors looking to invest in cryptocurrencies.
The company is based in London with operations in North America too. Argo Blockchain’s team includes a group of technologists, engineers and entrepreneurs. The CEO, Peter Wall was a member of the team that founded the firm.
Why have Argo Blockchain shares rocketed?
Simply put, the shares have soared on the back of popular cryptocurrency Bitcoin’s rally. This has sparked the recent surge in prices of other cryptocurrencies such as Ethereum.
As the demand for cryptocurrencies grows, so do mining services providers. Hence the significant rise of Argo Blockchain shares.
Cryptocurrency demand
The question I ask myself is whether the momentum for these digital assets is set to continue?
What I think is driving the growth of cryptocurrencies is the concern over inflation and economic uncertainty. Precious metals such as gold and cryptocurrencies are both considered as alternative assets, which diversify a portfolio.
The uncertainty of the coronavirus crisis has led investors to buy these alternative assets as they’re considered as safe havens, which store value and hedge against inflation. I expect this trend to continue well into 2021, and this in turn should be positive for Argo Blockchain shares.
Forecasts
In fact, JP Morgan is bullish on cryptocurrencies. At the time of writing, Bitcoin is trading at $34,000. But strategists at the investment bank predict the popular cryptocurrency could rise to $146,000.
The prediction follows similarly bullish forecasts by market analysts with a report from Citibank in November projecting Bitcoin could reach as high as $300,000 in 2021. All of these forecasts highlight that there could be a strong demand for cryptocurrency miners and Argo Blockchain shares could rise further along with that demand.
Its December operational update was positive overall. It reported higher revenues and margins from its cryptocurrency mining in December and offered an optimistic outlook for 2021.
The firm reported revenues for the month of £1.63m, up from £1.48m in November, which was generated with an average monthly mining margin of 60%, compared to 57% in the prior month. These results look promising and I think could continue into 2021.
My view
Argo Blockchain is a young company offering services in a relatively new technology. It made a loss in 2019, but I expect this will reverse going forward. Argo Blockchain shares are high risk, but I think they’re worth a punt in a well diversified portfolio like mine.